What to Watch From the Market Leader as Apple Stock Prepares for a Retracement
Tuesday's premarket trade of Apple, Inc. (NASDAQ: AAPL) was down around 0.7%, bringing the S&P 500 down approximately 0.12%.
Apple reached a significant resistance zone at the $167.88 level on Monday and concluded that trading day down 0.9% from the open after breaking up bullishly from a bull flag pattern on Aug. 3 and gaining over 3%.
Apple's relative strength index (RSI), which has been fluctuating between 65% and 71% since July 28, indicates that the stock has grown overbought, which is likely why the company struggled to overcome the resistance level on the first daily attempt.
Technical traders use the RSI indicator to gauge bullish and negative price momentum. The range of the RSI is 0 to 100, with levels between 30 and 70 generally seen as healthy.
A stock is regarded as oversold when its RSI drops below the 30% mark. When a stock enters oversold territory, it means the price no longer accurately reflects the worth of the asset, which can signify an impending upward reversal.
A stock is regarded as overbought when its RSI rises above the 70% region. A stock's price reaching its intrinsic value indicates it has entered overbought condition, which can indicate a downside reversal is imminent.
A stock chart's other indications and patterns should be employed in addition to RSI because stocks can stay in oversold or overbought area for a long time before turning around.
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The Apple Chart: Apple's extended RSI has probably discouraged some bullish traders from buying shares and served as a signal for others to sell. Since June 17, Apple and the market have been quite bullish, and they may soon need a larger downturn or at least some sideways trading to calm the RSI, which causes turbulent markets that are challenging to trade.
The gap between $157.64 and $159.50 below on Apple's chart is another indicator that might be making traders uneasy. About 90% of the time, gaps on charts are filled, thus it is expected that Apple will eventually fall to do so. Some bullish traders might be watching Apple in anticipation of a retracement and the printing of a bullish reversal candlestick above the gap's lower range.
Because the 200-day SMA is trending above the empty trading range, traders who are waiting for the gap to fill will want to see Apple decline intraday and then rise to close the trading session above the gap. In the event that Apple closed a trading session below the 200-day SMA, the bears would have a better chance of winning.
On the daily chart, Apple is trading in an upward trend; the most recent higher low was recorded on Friday at $163 and the most recent confirmed higher high was recorded the day before at $167.19. When Apple's stock drops to print its subsequent higher low, shorter-term bullish traders will want to see it maintain above the eight-day exponential moving average.
Support and resistance levels for Apple are at $162.14 and $157.26 below and $167.88 and $171.03 above.